Growing up, I loved the story of Goldilocks and the Three Bears.

And the big sticking point for me was Goldilocks not liking her porridge too hot or too cold – rather, she liked her porridge at just the right temperature.

I ate a lot of porridge growing up. Every morning, I had a bowl. And I adamantly agree with Goldilocks. Porridge that is too hot burns the mouth. Porridge that is too cold just doesn’t taste great. But porridge that is just the right temperature can be the best breakfast meal.

As it turns out, porridge isn’t the only thing that’s best when kept at the right temperature…

120-degree weather is unbearable. 5-degree weather is equally unbearable. But 70-degrees makes for the perfect day.

A car that’s too hot could fry its engine. A car that’s too cold won’t start. But a car operating at the right temperature will safely and quickly get you from Point A to Point B.

But perhaps the thing that operates best when it’s kept at the right “temperature” is the U.S. economy…

You see, when the U.S. economy gets too hot and grows too quickly, it risks runaway inflation, which will force monetary policy change to stifle that inflation, which will stunt economic expansion, and lead to a stagflation environment wherein the only thing that rises is the cost of living.

That’s bad…

But, on the flipside, when the U.S. economy gets too cold and doesn’t grow quickly enough, everyone is pretty much stuck in a no-growth situation. No big stock market booms. No pay raises. No bonuses. Nothing.

That’s bad, too…

So, the ideal economy is actually a so-called “Goldilocks Economy,” where growth is hot enough to sustain steady economic expansion, but not hot enough to spark runaway inflation or get the Federal Reserve to raise interest rates at a harmful pace.

We are entering a Goldilocks Economy right now.

The big post-Covid economic reopening has already come and gone. Pent-up consumer demand to go out and “do things” has been exhausted. We’ve already taken our summer vacations. We’ve already bought our new cars and houses. We’ve already restocked our wardrobes. Plus, rapid spread of the Delta variant of Covid-19 is forcing temporary shutdowns across the world, which will inevitably impact global economic activity.

The red-hot economic growth we’ve seen over the past few months – which, remember, has been accompanied by a worrisome bout of sky-high inflation (that’s the problem with a red-hot economy) – will slow in the coming months.

But it won’t slow too much. Because consumers and business both are still sitting on a ton of cash, the Fed is promising to sustain accommodative monetary policy for the near future, and technological progress is unlocking whole new levels of productivity which will help stimulate growth.

The result is a Goldilocks economy – one that is not too hot or too cold, and which will be defined by slow-growth, low-rates, and a Fed that’s sitting on the sidelines.

That’s the economy we are heading for over the next few years.

What type of stocks thrive in in a Goldilocks economy?

Growth stocks.

When the economy is booming, every company is growing. Energy companies. Industrial companies. Retail companies. They all benefit from the boom. And this results in investors pouring their money into all those stocks, because their companies are growing.

But when we have a Goldilocks economy, not every company is growing. Economically-dependent companies like energy, industrial, and retail firms fall flat – and investors pull their money from those stocks because their companies aren’t growing anymore.

Where does all that money go? Into growth stocks – because growth companies levered to secular trends such as e-commerce, streaming TV, cloud computing, AI, and EVs will continue to grow even in a slow economy. So, in a Goldilocks economy, they’re the only stocks posting consistent revenue and earnings growth – they’re the only “game in town,” so to speak.

That’s why now is as good a time as ever to buy growth stocks.

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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

By uncovering early investments in hypergrowth industries, Luke Lango puts you on the ground-floor of world-changing megatrends. It’s the theme of his premiere technology-focused service, Innovation Investor. To see Luke’s entire lineup of innovative cutting-edge stocks, become a subscriber of Innovation Investor today.